Federal Reserve chairman nominee Janet Yellen testified at a confirmation hearing before the Senate Banking Committee this morning.
The full text of her prepared remarks was released Wednesday.
Yellen was careful to avoid revealing anything substantive on the future course of monetary policy, and markets did not respond much to her testimony.
Really, she sounded like her predecessor (current Fed chairman Ben Bernanke) in that she largely reinforced notions Fed-watchers already heard.
Below is a live blog of the hearing.
10:18 AM: Janet Yellen says unemployment remains high, a disproportionate share of that unemployment is made up of long spells of unemployment, which are particularly painful for households. “I consider it imperative that we do what we can to promote a very strong recovery. We’re doing that by continuing our asset purchase program, which we put in place with the goal of assuring a substantial improvement in the outlook for the labour market. We are taking into account the costs and the efficacy as we go along. At this point, I think the benefits exceed the costs.”
10:21: Yellen says there are dangers to both ending QE too early and dangers in keeping it in place too long.
10:24: Yellen says her personal assessment is that QE has made a meaningful contribution to economic growth. “Lower interest rates have been instrumental” for the housing sector.
10:27: “I would agree that this program cannot continue forever,” says Yellen. She cites potential risks to financial stability, which she says the Committee takes very seriously. “The longer this program continues, the more we will need to worry about these risks.”
10:28: “What the Committee is looking for is signs that we have growth enough to sustain continued progress,” says Yellen. The Committee expects continued progress going forward.
10:32: “At this point, I don’t see a risk to financial stability, although there are limited signs of a reach for yield,” says Yellen.
10:33: Yellen says the FOMC does spend a good amount of time monitoring prices of various assets. “By and large, I would say I don’t see evidence in major sectors of price misalignments” of the size that would pose risks to financial stability.
10:43: Yellen says the objective of Fed policy “is to broadly benefit all Americans, especially those who are seeing harm come to them and their families from high unemployment in a recovery that’s taken a long time and frankly, disappointing.” Fed policy tends to affect interest-sensitive areas of spending like housing and autos, but ripple effects from that move throughout the economy.
10:46: Yellen says addressing too-big-to-fail banking is among the most important areas of reform to focus on in the post-crisis era. Dodd-Frank legislation, once implemented, should make a “very meaningful difference.”
10:56: Yellen says she strongly supports transparency and openness at the Fed. “We are one of the most transparent central banks in the world.” What she would not support is a requirement that would diminish the independence of the Federal Reserve in deciding on and implementing monetary policy. “I believe [Fed independence is] critically important to the economic performance of this country.”
11:04: Yellen says the economy has suffered substantially over the last year from the drag from fiscal policy, citing CBO estimates. Yellen says taking into account that fiscal drag, the economy is growing and shows greater momentum. If there is less fiscal drag, she believes the economy will pick up.
11:10: Yellen says she hasn’t seen a lot of models that are successful in predicting gold prices.
11:13: Yellen doesn’t think equity prices are in a bubble, cites equity risk premium and P/E ratios.
11:21: Yellen says Fed policy has boosted stocks “to some extent,” and the boost to home prices has been “broadly beneficial.”
11:24: Yellen says the Fed is not a prisoner of the markets, and she continues to feel that we are seeing an improvement in the labour market, which was the goal of the program, and the Fed will continue to evaluate incoming data going forward.
11:30: Yellen says the Fed and other central banks are trying as hard as they can to communicate clearly about monetary policy goals, both intentions and how they carry out programs. “It is a work in progress, and sometimes miscommunication is possible … we certainly want to diminish volatility,” but the Committee’s views about the economy naturally change over time, and thus one would expect to see market responses to those changing views.
11:47: Yellen says reductions in fiscal spending have made it harder for the Fed to get the economy moving.
11:49: Yellen says a default on U.S. debt would be “catastrophic.” She says there were signs that markets were taking pre-emptive actions to protect themselves against such events in the run up to the temporary debt-ceiling extension in October.
11:54: Yellen says private investors are coming in to invest in U.S. housing markets, often in all cash. “I’d say we have to watch this very carefully, but I don’t see that as an asset bubble. I see that as a very logical response of the market to generate a recovery in very hard-hit areas.”
12:16: Hearing concludes.
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